Case Note & Summary
The appeal was filed by a suspended director of Sahara Hospitality Ltd. (Corporate Debtor) against the order of the National Company Law Tribunal, Mumbai Bench, admitting a Section 9 application filed by KTR Management Service Pvt. Ltd. (Operational Creditor). The Operational Creditor had entered into a Facility Agreement on 01.04.2018 with the Corporate Debtor for supply of manpower at a hotel. The Corporate Debtor alleged deficiencies in services and terminated the agreement on 26.12.2019. The Operational Creditor issued a demand notice under Section 8 of the IBC on 03.01.2020 claiming Rs.8,22,82,004/-. The Corporate Debtor replied on 28.01.2020 disputing the claim and referring to ongoing disputes. The Adjudicating Authority admitted the Section 9 application, leading to the appeal. The NCLAT examined whether there was a pre-existing dispute. It noted that the Corporate Debtor's reply to the demand notice did not raise a dispute pending before a court or tribunal, and the counterclaim was not a valid dispute under the IBC. The NCLAT held that the debt and default were established, and the appeal was dismissed.
Headnote
A) Insolvency and Bankruptcy Code - Section 9 Admission - Pre-existing Dispute - Section 8(2)(a) IBC - The appeal challenged the admission of a Section 9 petition filed by an Operational Creditor for unpaid manpower supply services. The Corporate Debtor alleged deficiency in services and raised a counterclaim. The NCLAT held that the reply to the demand notice did not raise a pre-existing dispute as required under Section 8(2)(a) of the IBC, and the counterclaim was not a valid dispute. The appeal was dismissed. (Paras 2-10) B) Insolvency and Bankruptcy Code - Operational Debt - Manpower Supply - Section 5(21) IBC - The claim for unpaid invoices for manpower supply services was held to be an operational debt under Section 5(21) of the IBC. The Corporate Debtor's termination of the Facility Agreement did not extinguish the liability for services already rendered. (Paras 2-5) C) Insolvency and Bankruptcy Code - Pre-existing Dispute - Reply to Demand Notice - Section 8(2)(a) IBC - The Corporate Debtor's reply to the demand notice merely denied the claim and alleged deficiencies but did not provide any evidence of a dispute pending before a court or tribunal. The NCLAT held that a mere denial or counterclaim does not constitute a pre-existing dispute. (Paras 6-9)
Issue of Consideration
Whether the Adjudicating Authority erred in admitting the Section 9 application despite the existence of a pre-existing dispute between the parties.
Final Decision
The appeal is dismissed. The order dated 21.11.2024 passed by the Adjudicating Authority admitting the Section 9 application is upheld.
Law Points
- Existence of debt and default
- Pre-existing dispute
- Section 8 notice reply
- Counterclaim as dispute
- Operational debt definition
